STANDARDS IN ECONOMICS

STANDARDS IN PERSONAL FINANCE

OPTIONS

Socialize

In 1998, the Senate voted to reject a $1 increase in the federal hourly minimum wage. The vote fell along party lines, with Democrats voting in favor of the proposal and Republicans voting against it. Interview your classmates to find arguments for and against.

KEY CONCEPTS

INTRODUCTION

Last week the Senate voted to reject a $1 increase in the federal hourly minimum wage. The vote fell along party lines, with Democrats voting in favor of the proposal and Republicans voting against it. Interview your classmates to find arguments for and against the proposed increase in the minimum wage.

According to an MSNBC article Senator Kennedy, the originator of the proposal said, "Giving low-wage workers an additional 50 cents an hour can make all the difference. It can help to buy groceries or pay the rent or defray the cost of job-training courses at the local community college. The need is real. Raising the minimum wage can keep families out of soup kitchens and homeless shelters."

Opponents said an increase would hurt small businesses and cause unemployment.They said that increasing the minimum wage, "could actually have an adverse impact upon our economy" and could cause unemployment "that hurts the low-income workers the hardest." -Sen. Rod Grams, R-Minn., said before the vote.

RESOURCES

Wage and Hour Division: This U.S. Department of Labor page provides historical data on the value of the Federal Minimum wage (adjusted for inflation. www.dol.gov/whd/minwage/chart.htm

PROCESS

Take a look at some historical data on the value of the Federal Minimum wage (adjusted for inflation) at the U.S. Department of Labor page named "Wage and Hour Division
."

What has the trend been for the last several years?

In what year was the real minimum wage the highest?

ASSESSMENT ACTIVITY

1. What is the issue?

[The issue is whether to increase the minimum wage.]

2. Draw a supply and demand graph that illustrates the situation when a minimum wages is involved. Does the situation involve a price floor, a price ceiling, or neither?

[A price floor.]

3. What broad social goals should you consider as you decide how to vote on this issue?

[Some relevant broad social goals are full employment for teenagers, full employment for others, economic freedom, economic fairness, and economic equity.]

4. What are some alternate means of achieving these goals?

[Some alternatives are to raise the minimum wage, to keep the minimum wage the same, to eliminate the minimum wage, or to eliminate the minimum wage for teenagers.]

5. What are some advantages and disadvantages of each alternative? Be sure to consider who gains and who loses by each alternative.

[Minimum wages affect labor markets only when the mandated minimum wage is above the equilibrium wage. When the minimum wage is above the equilibrium wage, more people will want to work and employers will want to hire fewer workers. This causes unemployment. You can illustrate this with a supply and demand graph. Under these circumstances, teenage unemployment increases the most because employers would rather hire skilled adults than the less skilled teens when the price of labor in each case is the same or nearly the same. In general the minimum wage tends to make the broad social goal of full employment more difficult to meet. According to those who support it, the minimum wage reduces freedom but promotes fairness and equity.]

6. Would you vote to raise the minimum wage?

[People who think that they can get a job will probably favor raising the minimum wage. People who anticipate the higher minimum wage will prevent them from getting a job will probably oppose it.]

CONCLUSION

Based upon what you see in the chart:

Is an increase in the minimum wage justified? Explain.

[Answers vary. The real value of the minimum wage is significantly lower now than in past decades, so one might feel inclined to boost the wage to make its current value comparable to its value in earlier years. Another argument may be that the decision to raise the wage is always a political one, not determined by markets, thus historical data may not provide a valid basis for setting an appropriate level. The value of the minimum wage now, according to this argument, might be high, according to market standards, even if it is low in comparison with past rates.]